With technology increasingly seeping into every aspect of our day-to-day lives, it should come as no surprise that it is also playing an increasingly greater role in how we experience financial services. More and more, people desire to consume information in a different way—namely, through technology and one another, whether there is, or not, a person-based service interaction involved. And this trend will only grow as millennials continue to reach adulthood and enter the workforce and as boomers continue to increase their appetite for, and aptitude with, technology.
Today’s youth are often referred to as “digital natives.” This generation has never been without smartphones or “touch-based” screen experiences. They have been raised communicating via text messaging and completing transactions through apps. As a result, they have a comfort level with technology not experienced by previous generations. In addition, as boomers begin to enter retirement they are using their spare time boning up their working knowledge of technical devices. So what does this mean for personal financial services?
As is the case with many other industries, the financial sector must continue to evolve in order to engage not only millennials, but also any consumer who would rather interact with a mobile device rather than go and speak to a person regarding their finances. Enter the robo advisor, one in many technically powered innovations to come.
According to Investopedia, a robo advisor “is an online wealth management service that provides automated, algorithm-based portfolio management advice without the use of human financial planners.” Such services have been growing in popularity throughout the investment sector of the financial industry.
TD Ameritrade Investment Management, for example, recently introduced Essential Portfolios, which, through a series of questions to understand personal investing goals and risk tolerance, enables users to receive a recommendation for a specific managed portfolio that can fit their financial needs for a low cost, all within about 15 minutes. The portfolio is monitored and automatically re-balanced by TD Ameritrade Investment Management, and the investor has on-the- go access through any device to monitor their portfolio and adjust their financial goals in the app as life presents them with changes.
While the idea of using an automated program to manage their investment portfolio may seem esoteric for certain investors, for countless others it can be an ideal option for a number of reasons. Typically, robo advisors require a smaller initial investment and have lower fees than a professional financial advisor. It’s important that investors keep in mind, however, that not everything is manageable through such programs, so for those with more complex wealth management needs, having a trusted financial advisor or tax professional is still a path worth considering.
According to TD Ameritrade’s Investor Pulse Survey*, only 3 percent of respondents reported investing 76 percent or more of their assets via robo advisor or another automated online investment service platform. This means that the vast majority of investors are still using more traditional investment methods either entirely or in conjunction with robo advisors. As investors grow, so too do their needs and companies are evolving to meet those ever changing demands.
Part of the big picture: A hypothetical case study
When Melissa was eight, her school offered a program that enabled students to open a savings account with a local credit union. Every week, the student-run “branch” was open, and she was able to deposit a portion of her allowance. She participated every year throughout elementary school. When she graduated fifth grade, she was amazed at how much she had been able to save. This experience taught Melissa the importance of saving.
When Melissa was in high school, she opened her first checking account online. Her paychecks from her first job were automatically deposited into her account, and she used her debit card to withdraw money. Throughout college, Melissa continued to bank online. She managed her budget using a smartphone app and was able to finance much of her college education by drawing on a